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Surging depreciation and costs hit AirAsia's first-quarter profit

AirAsia has reported a first-quarter operating profit down 68% at MYR236 million ($56.3 million), after a sharp increase in total expenditure.

Revenue in the three months ended 31 March was up 13% at MYR2.88 billion, but expenses jumped 21% to MYR2.78 billion. Depreciation was the highest contributor to the higher expenses, followed by maintenance and fuel costs.

Unit cost rose 8% if fuel is included, or 11% ex-fuel.

Net profit plunged 91% to MYR102 million, despite foreign-exchange gains and a fair-value gain on derivatives. Last year's figure had included remeasurement gains on retained interest in a former subsidiary.

On 31 March, the company's cash and cash equivalents amounted to MYR2.94 billion, up from MYR2.03 billion at the same point in 2018.

Passenger numbers rose 18% to 12.5 million in the first quarter. Traffic growth of 13% outpaced an 11% capacity boost. Load factor rose one point to 88%.

Thai AirAsia's EBITDAR fell 24% to Bt2.76 billion. Revenue dipped 0.9% to Bt11.2 billion, and profit after tax was down 51% at Bt903 million. The group links its Thai affiliate's EBITDAR decline to a lower average fare which outweighed an increase in passenger numbers.

AirAsia India's positive EBITDAR of Rs21 million reversed a loss of Rs932 million in the same period last year. Revenue climbed 31% to Rs6.3 billion, aided by growth in passenger numbers.

However, the Indian unit made a loss after tax of Rs1.47 billion amid sharply higher depreciation and financing costs in line with an increase in fleet size.

AirAsia Japan made a net loss of Y1.26 billion. No revenue or EBITDAR figure was provided. Between 11 January and 4 March, AirAsia extended two loans totalling Y3 billion ($27.4 million) to facilitate the "running of the operations and financial affairs of AirAsia Japan".

In its outlook, AirAsia says load factors for the rest of 2019 are showing strong momentum, and that fares are "holding steady". The group plans to add 18 aircraft across the various carriers, with AirAsia India to receive the bulk. This is in line with plans for the airline to begin international services. The operating landscape in India is likely "to see some changes" in the near future, notes AirAsia.

While it has yet to see any material impact from trade wars, currency weakness remains a concern. AirAsia has hedged 52-57% of its fuel requirements for the rest of 2019 at an average price of $61-64 per barrel.

"Barring any unforeseen circumstances, the board remains positive that the overall core results of the group in 2019 will be better than 2018," it adds.

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